ACC 565 Week 7 Assignment 3 Reorganizations and Consolidated Tax,
- Compare the long-term tax benefits and advantages of each type of reorganization, and recommend the type of reorganization that will be most beneficial to the client.
Reorganization is the term used to refer to the concept of acquisition of new entities is such a way that all transactions made are nontaxable. The support for this method of acquisition of new assets by an organization is present in the US law. Section 368 talks about this concept in detail and is issued under the supervision of Internal Revenue Service. Reorganization comes in different forms namely type A, B, C and D. the explanation for these types is given below.
- Type A: It refers to the reorganization that takes place in the form of consolidations and mergers
- Type B: It refers to the reorganization in the form of utilizing the voting stock of the company undergoing the reorganization to acquire the stock of the company being acquired
- Type C: it refers to the reorganization style in which the company being acquired gets liquidated and the shareholders of the acquiring company buy the shares of the target company
- Type D: It refers to the reorganization style in which division and acquisition are used as the main tools for reorganization
All these forms of reorganizations result in nontaxable transaction with no tax liability of acquiring new entities. It must be made sure that the relevant section of
IRS is followed for the correct implementation of law and to avoid any illegal activity by breaking law unintentionally. Having discussed the types of reorganization, there is now a need to describe the advantages of these types too.
As has been mentioned above, type A reorganization involves mergers under the statutory terms. Under this type of merger, the liabilities of the acquired entity is not transferred to the company acquiring it which makes it safe for the acquiring company to go ahead with the merger. This is unlike the normal merger where liabilities are also transferred. Another plus point of this merger is that the complexity of involving approval from shareholders of the company can be avoided which saves time and excessive paper work.
In case of type B reorganization, the major benefit it demonstrates is that it allows 80% possession of the stock of the target company which enables it